Whitehaven’s coking coal buy to send earnings up 93pc, Citi says
Whitehaven Coal’s purchase of two coking coal mines from BHP and its partner, Japan’s Mitsubishi, for $US3.2 billion ($5 billion) will push earnings per share up 93 per cent by 2025, according to brokers at Citi.
The investment bank’s analysts appear to have backed the acquisition – which has been opposed by Whitehaven’s largest shareholder, London hedge fund Bell Rock Capital Management – increasing their target price on the company’s shares by more than 10 per cent to $8.45.
Whitehaven shares last traded on Friday at $7.72 each, and are down more than 10 per cent since the start of the year.
In a note to clients, Citi’s analysts said they could not see much in the way of balance sheet risk for Whitehaven despite the concerns from Bell Rock.
Whitehaven will pay the $5 billion purchase price for the Blackwater and Daunia mines over the next three years.
Whitehaven agreed to buy the Queensland-based Daunia and Blackwater metallurgical coal mines from BHP after beating out rival bidders BUMA and Stanmore Resources, The Australian Financial Review’s Street Talk column reported this month. Whitehaven and BHP are due to wrap up the transaction by the end of June.
The research analysts, however, noted there were several “delivery risks” at the Blackwater mine due to the sheer scale of the operations. Blackwater covers 80 kilometres and contains eight pits, which could increase capital expenditure requirements.
Citi described the size of the mine as “an entirely different scale of logistical challenges” to Whitehaven’s management.
The broker said capital expenditure at Daunia would average $110 million annually for the next five years. This is partly due to plans to grow Daunia’s Pandora pit, which is estimated to cost $90
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